You are the owner of an apartment building that is being offered for sale for $1,500,000....

 

  

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You are the owner of an apartment building that is being offered for sale for $1,500,000. You receive an offer from a prospective buyer who wants to pay you $500,000 now, $500,000 in 6 months, and $500,000 in 1 year. a. What is the actual present value of this offer considering you can earn 12% interest compounded monthly on your money? b. If another buyer offers to pay you $1,425,000 cash now, which is a better deal? c. Because you understand the "time value of money" concept, you have negotiated a deal with the original buyer from part a whereby you will accept the three-payment offer but will charge 12% interest compounded monthly on the two delayed payments. Calculate the total purchase price under this new arrangement. d. Now calculate the present value of the new deal to verify that you will receive the original asking price of $1,500,000 for your apartment building. Complete the analysis included in "Business Decision: Pay Me Now, Pay Me Later" located on page 368 of the textbook. Share with the class which payment arrangement you will accept: a) the three payment option b) the cash now option. Include in your analysis the following: c) calculate the total purchase price if you charge interest as indicated in the problem d) What is the present value of the payment using the interest charge as indicated in part c. Does this change the decision as to which payment you would accept? You are the owner of an apartment building that is being offered for sale for $1,500,000. You receive an offer from a prospective buyer who wants to pay you $500,000 now, $500,000 in 6 months, and $500,000 in 1 year. a. What is the actual present value of this offer considering you can earn 12% interest compounded monthly on your money? b. If another buyer offers to pay you $1,425,000 cash now, which is a better deal? c. Because you understand the "time value of money" concept, you have negotiated a deal with the original buyer from part a whereby you will accept the three-payment offer but will charge 12% interest compounded monthly on the two delayed payments. Calculate the total purchase price under this new arrangement. d. Now calculate the present value of the new deal to verify that you will receive the original asking price of $1,500,000 for your apartment building. Complete the analysis included in "Business Decision: Pay Me Now, Pay Me Later" located on page 368 of the textbook. Share with the class which payment arrangement you will accept: a) the three payment option b) the cash now option. Include in your analysis the following: c) calculate the total purchase price if you charge interest as indicated in the problem d) What is the present value of the payment using the interest charge as indicated in part c. Does this change the decision as to which payment you would accept?

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a Interest rate r 12 compounded monthly Monthly interest rate 12 1... View the full answer